Ericsson Faces Overhaul Amid Loss

Mobile telecom equipment maker Ericsson faces a long and painful overhaul after shrinking markets, tough competition and restructuring costs pushed it to a quarterly operating loss on Tuesday.

The Swedish company, which is seeking to reposition the business for growth under new chief executive Borje Ekholm, reported an operating loss of 12.3 billion Swedish crowns ($1.4 billion) as previously announced provisions, writedowns and restructuring costs pushed it deep into the red.

That compared with a 3.5 billion crown profit in the same period last year and a mean forecast for a 12.0 billion crown loss in a Reuters poll of analysts.

Ekholm wants to focus the business on lucrative core networks while restoring profitability in its IT & Cloud unit. It is also exploring partnerships or a sale of all or part of its media unit.

Sales came in at 46.4 billion crowns, below the consensus forecast of 47.3 billion, while the gross margin was 13.9 percent versus the 17.9 percent seen by analysts.

The company reiterated its guidance to at least double 2016 margins beyond 2018 through more aggressive cost-cutting.

“What we see now is a need … to intensify our efforts further on the cost side,” Ekholm said on a call with analysts, adding that this would include streamlining its portfolio.

Ericsson cut its total workforce by almost 5,000 last year to around 111,000 as part of a drive to improve profitability. Ekholm said he expected the steps he is taking to lead to significant profitability improvements as early as 2018.

Critics question whether Ekholm, a veteran Ericsson board member, is best placed to turn the business around. They say a more varied, international management team at rival Nokia was key to its revival.

Ericsson backers say the company has changed the guard, albeit internally, and is doing a good job of promoting a new generation of managers.


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